Dow Industrials Tumble 588 Points to 18-Month Low Amid Global Market Selloff
Growth fears spook investors around the world; Dow briefly plummets more than 1,000 points
By Corrie Driebusch
Wall Street Journal
Aug. 24, 2015 4:49 p.m. ET
U.S. stocks tumbled on Monday, with the Dow Jones Industrial Average dropping to an 18-month closing low in a tumultuous trading session that saw the blue-chip benchmark briefly plummet more than 1,000 points.
The Dow plunged as much as 1,089 points in the first six minutes of trading before paring losses as traders said mutual funds and other investors began stepping in to buy up beaten down stocks. More than 13.9 billion shares changed hands, making Monday the largest volume day since August 2011.
Brad McMillan of Commonwealth Financial joins Paul Vigna with analysis of Monday's global market plunge that saw the Dow plummet 1,000 points at the open on worries over China's economy.
The Dow industrials ended down 588.40 points, or 3.6%, to 15871.35, its lowest closing level in 18 months.
The S&P 500 dropped 77.68 points, or 3.9%, to 1893.21, joining the Dow industrials in correction territory, defined as a decline of 10% from a recent peak. The Nasdaq Composite fell 179.79 points, or 3.8%, to 4526.25.
Traders attributed the early morning drop in part to big investors scrambling for ways to protect themselves against losses outside the U.S., as well as to a cascade of automatic selling by retail investors. Traders said the sharp morning declines triggered so-called stop-loss orders, which are designed to protect investors by instigating a sale once a stock falls to a certain level. They are typically used by brokers who manage money for retail investors.
The Dow’s tumble marked its largest one-day point decline ever on an intraday basis, as intensifying growth fears sparked steep stock-market losses world-wide. Large retail brokerages hosted calls with their legions of financial advisers, encouraging them to stay calm and possibly buy beaten down companies. Mutual funds and hedge funds also began scooping up stocks, traders said.
“When a big selloff comes, it tends to be herd mentality,” said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management. “But once that herd gets out of the way, there can be some very good buying opportunities.”
Many investors said they remain optimistic about U.S. stocks and stepped in to buy shares.
“Stock prices have dropped sharply and fears have increased sharply,” said Kate Warne, investment strategist at Edward Jones. “But it’s really important to keep in mind while stock prices have changed and obviously emotions have changed, fundamentals for the U.S. haven’t changed. Even with China selling sharply and emerging markets selling off, we’re still seeing solid U.S. economic growth.”
Investors stampeded into relatively safe assets such as U.S. government bonds, the Swiss franc and the yen. The 10-year Treasury yield, a foundation for global finance and a key indicator of investors’ sentiment toward growth and inflation, was 1.997%, down from 2.052% Friday. Yields fall as prices rise.
Fears that China’s economy is slowing dramatically sparked the heavy selling in stocks around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second-largest economy may be in worse shape than many had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown.
China’s Shanghai Composite sank 8.5% on Monday, entering negative territory for 2015, having risen as much as 60% to its June peak. Japan’s Nikkei benchmark tumbled 4.6%.
The pan-European Stoxx Europe 600 closed 5.3% lower, the biggest one-day decline since December 2008. Germany’s DAX dropped 4.7% and has now lost more than 20% since its April peak, meaning the index has entered a so-called bear market. Germany’s stock market, which contains many car makers and industrial firms with a big chunk of their sales in China, has been among the worst-hit by the recent selloff.
Fresh signs of a slowdown in China, the world’s second largest economy, have jolted stocks, bonds, currencies and commodities in recent days. Investors were further rattled Monday by the lack of fresh steps to stem the selloff over the weekend from Chinese authorities.
The Wall Street Journal reported that the Chinese central bank was preparing to flood the banking system with liquidity to increase lending, the latest in a series of measures designed to give the flagging economy a boost.
“A lot of markets abroad have seen a low amount of liquidity so investors are turning to the U.S. market to hedge,” said Jeffrey Yu, head of single-stock derivatives trading at UBS Group AG.
The New York Stock Exchange operator NYSE Group Inc. invoked the rarely used “Rule 48,” which relaxes some trading rules in a bid to ensure a smooth opening to trading. The rule is instituted when trading before the start of the regular session is especially volatile.
At the market open on Monday, a slew of single stocks and exchange-traded products triggered circuit breakers, which are initiated when there is a price drop of 10% or more in a five-minute period.
In addition to worrying about overseas economic growth, investors continue to focus on when the U.S. Federal Reserve will raise interest rates. Amid turmoil in global markets and plunging inflation expectations, there’s increased skepticism that the Fed will raise interest rates at its meeting next month.
A gauge of 10-year inflation expectations in the U.S. government bond market fell to the lowest level since 2009. Fed officials have said they intend to pursue policies that will enable inflation to rise to its 2% target in the medium term.
Fed funds futures, used to place bets on central bank policy, showed Monday that investors and traders see a 24% likelihood of a rate increase at the September 2015 meeting, according to data from the CME Group. The probability was nearly halved from two weeks ago.
In other markets, oil prices plunged, with the U.S. oil benchmark settling down 5.5% at $38.24 a barrel, its first close below $40 a barrel since February 2009.
—Saumya Vaishampayan, Tommy Stubbington and Bradley Hope contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
By Corrie Driebusch
Wall Street Journal
Aug. 24, 2015 4:49 p.m. ET
U.S. stocks tumbled on Monday, with the Dow Jones Industrial Average dropping to an 18-month closing low in a tumultuous trading session that saw the blue-chip benchmark briefly plummet more than 1,000 points.
The Dow plunged as much as 1,089 points in the first six minutes of trading before paring losses as traders said mutual funds and other investors began stepping in to buy up beaten down stocks. More than 13.9 billion shares changed hands, making Monday the largest volume day since August 2011.
Brad McMillan of Commonwealth Financial joins Paul Vigna with analysis of Monday's global market plunge that saw the Dow plummet 1,000 points at the open on worries over China's economy.
The Dow industrials ended down 588.40 points, or 3.6%, to 15871.35, its lowest closing level in 18 months.
The S&P 500 dropped 77.68 points, or 3.9%, to 1893.21, joining the Dow industrials in correction territory, defined as a decline of 10% from a recent peak. The Nasdaq Composite fell 179.79 points, or 3.8%, to 4526.25.
Traders attributed the early morning drop in part to big investors scrambling for ways to protect themselves against losses outside the U.S., as well as to a cascade of automatic selling by retail investors. Traders said the sharp morning declines triggered so-called stop-loss orders, which are designed to protect investors by instigating a sale once a stock falls to a certain level. They are typically used by brokers who manage money for retail investors.
The Dow’s tumble marked its largest one-day point decline ever on an intraday basis, as intensifying growth fears sparked steep stock-market losses world-wide. Large retail brokerages hosted calls with their legions of financial advisers, encouraging them to stay calm and possibly buy beaten down companies. Mutual funds and hedge funds also began scooping up stocks, traders said.
“When a big selloff comes, it tends to be herd mentality,” said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management. “But once that herd gets out of the way, there can be some very good buying opportunities.”
Many investors said they remain optimistic about U.S. stocks and stepped in to buy shares.
“Stock prices have dropped sharply and fears have increased sharply,” said Kate Warne, investment strategist at Edward Jones. “But it’s really important to keep in mind while stock prices have changed and obviously emotions have changed, fundamentals for the U.S. haven’t changed. Even with China selling sharply and emerging markets selling off, we’re still seeing solid U.S. economic growth.”
Investors stampeded into relatively safe assets such as U.S. government bonds, the Swiss franc and the yen. The 10-year Treasury yield, a foundation for global finance and a key indicator of investors’ sentiment toward growth and inflation, was 1.997%, down from 2.052% Friday. Yields fall as prices rise.
Fears that China’s economy is slowing dramatically sparked the heavy selling in stocks around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second-largest economy may be in worse shape than many had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown.
China’s Shanghai Composite sank 8.5% on Monday, entering negative territory for 2015, having risen as much as 60% to its June peak. Japan’s Nikkei benchmark tumbled 4.6%.
The pan-European Stoxx Europe 600 closed 5.3% lower, the biggest one-day decline since December 2008. Germany’s DAX dropped 4.7% and has now lost more than 20% since its April peak, meaning the index has entered a so-called bear market. Germany’s stock market, which contains many car makers and industrial firms with a big chunk of their sales in China, has been among the worst-hit by the recent selloff.
Fresh signs of a slowdown in China, the world’s second largest economy, have jolted stocks, bonds, currencies and commodities in recent days. Investors were further rattled Monday by the lack of fresh steps to stem the selloff over the weekend from Chinese authorities.
The Wall Street Journal reported that the Chinese central bank was preparing to flood the banking system with liquidity to increase lending, the latest in a series of measures designed to give the flagging economy a boost.
“A lot of markets abroad have seen a low amount of liquidity so investors are turning to the U.S. market to hedge,” said Jeffrey Yu, head of single-stock derivatives trading at UBS Group AG.
The New York Stock Exchange operator NYSE Group Inc. invoked the rarely used “Rule 48,” which relaxes some trading rules in a bid to ensure a smooth opening to trading. The rule is instituted when trading before the start of the regular session is especially volatile.
At the market open on Monday, a slew of single stocks and exchange-traded products triggered circuit breakers, which are initiated when there is a price drop of 10% or more in a five-minute period.
In addition to worrying about overseas economic growth, investors continue to focus on when the U.S. Federal Reserve will raise interest rates. Amid turmoil in global markets and plunging inflation expectations, there’s increased skepticism that the Fed will raise interest rates at its meeting next month.
A gauge of 10-year inflation expectations in the U.S. government bond market fell to the lowest level since 2009. Fed officials have said they intend to pursue policies that will enable inflation to rise to its 2% target in the medium term.
Fed funds futures, used to place bets on central bank policy, showed Monday that investors and traders see a 24% likelihood of a rate increase at the September 2015 meeting, according to data from the CME Group. The probability was nearly halved from two weeks ago.
In other markets, oil prices plunged, with the U.S. oil benchmark settling down 5.5% at $38.24 a barrel, its first close below $40 a barrel since February 2009.
—Saumya Vaishampayan, Tommy Stubbington and Bradley Hope contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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